Labour used “economically illiterate” analysis paid for by water companies in order to argue against the nationalisation of the sector, the Guardian can reveal.
In an official letter recently sent to anti-sewage groups, civil servants cited a paper by the Social Market Foundation as a reason to avoid nationalisation as part of its review of the sector. The report from 2018 was commissioned by United Utilities, Anglian Water, Severn Trent and South West Water.
The letter, sent by the Department for Environment, Food and Rural Affairs (Defra) to the Rivers Trust, Surfers Against Sewage, River Action UK and Greenpeace states: “The Social Market Foundation calculated the likely cost of renationalisation to be £90bn, drawing on publicly available data from Ofwat, the London Stock Exchange and the annual accounts of the water companies. Renationalisation would impose a huge burden on the public purse at a time when public finances are already stretched.”
Sir Dieter Helm, a leading economist, called the analysis “economically illiterate”.
Moody’s rating agency has disputed this figure and estimated that nationalisation could actually cost £14.5bn – a fraction of the analysis amount.
Earlier this month, Steve Reed, the environment secretary, announced a review into the water companies and the regulators, but said nationalisation was firmly off the table. He said it would cost “billions of pounds” and would not solve the sewage crisis.
The water sector has been lobbying against nationalisation arguing that private finance has brought large sums of money in for investment in infrastructure.
The Labour government also has to decide whether, and when, to put failing companies into special administration – essentially a short-term nationalisation of a water company – which is a fate feared by Thames Water in particular. Reed recently said this is not happening and explained: “Thames Water remains financially viable. They are seeking to raise the funds that they need moving forward and we need to give them the space to get on and do that.”
Reed has been courting the private finance sector in order to drum up support for struggling water firms. He recently hosted a round table with investors including a representative from Macquarie, the firm held responsible for raising the debt of Thames Water, which is now at risk of collapse.
Matthew Topham, the lead campaigner at We Own It, said: “Keir Starmer’s government is at a crossroads: it can protect households and our waterways or it can protect shareholders.
“Treasury officials have rather made it clear that it is the continued privatisation at Thames Water which poses a risk to the finances of other water companies and could spark a Liz Truss-style borrowing crisis.”
Topham added: “Failing rail firms are set to lose their contracts. New Labour used its special administration powers to end the financial and fatality crisis at privatised Railtrack, creating publicly owned Network Rail. Why won’t this Labour government take action on water?”
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Feargal Sharkey, the clean water campaigner and Undertones frontman, said: “Who should the government believe? A sham of a report commissioned by four water companies or a report written by one of the world’s market analysts and credit rating agencies whose whole business model is predicated on the robustness and accuracy of their data? Surely the government wouldn’t make that mistake, would they?”
The Labour MP Clive Lewis has been among those in parliament pushing for nationalisation of the water companies, and he has said it is likely to cost less than the figures cited by the government.
He said: “The current model of private water ownership is a model that has failed. No amount of tinkering with new regulatory powers is going to work. This is one river turd you will not be able to polish. As with GB Energy, no one is talking about a 1970s-style nationalisation. We are talking about public ownership and accountability of our critical water infrastructure.”
It was also recently revealed that Reed accepted almost £2,000 in tickets and hospitality for a football match from bosses linked to Northumbrian Water. He went to a Chelsea v Crystal Palace football match at the invitation of Hutchison 3G UK Limited, which is ultimately wholly owned by CK Hutchison Holdings. CK Hutchison Holdings owns 75% of Cheung Kong Infrastructure Holdings, which is the owner of Northumbrian Water.
A Defra spokesperson said: “The government has no intention to nationalise water companies. It would cost tens of billions of pounds and take years to unpick the current ownership model, during which time the sector’s issues would only get worse. We will instead tackle the situation as quickly as possible and have taken immediate steps to fix the broken water sector. Our water bill creates new powers to ban water bosses’ bonuses and brings criminal charges against lawbreakers.”